About UCLA Anderson Global Supply Chain Blog
This blog is developed by the Decisions Operations and Technology Management (DOTM) Faculty at the UCLA Anderson School as well as special guests. It is intended to report, analyze, and comment on events that relate to current Global Supply Chain Management issues. Each blog is presented in English, (Simplified) Chinese, and (Castilian) Spanish, and it can take one of the following formats:
(a) An Interview -- the author formulates questions about a current issue, and the interviewee provides commentary.
(b) An insight -- the author provides insights concerning global supply chains, including current events.
(c) An analytical piece -- the author analyzes a particular supply chain issue and formulates descriptive and/or prescriptive views.
For more information on the blog contributors, check the DOTM website.

06/22/2016

Making Supply Meet Demand at America’s Food Banks

In the U.S., Feeding America is a national human services agency that distributes food donated by large food manufacturers (such as Kraft) to a nationwide network of food banks (Figure). At each food bank, 20% of the foods is provided by Feeding America and the remaining 80% is donated by the local food manufacturers and distributors. Because the quantity and the type of foods donated by the local communities are uncertain, Feeding America finds it difficult to allocate the right quantity and the right type of foods when they do not have access to timely information about the inventory level and the demand level of different food categories (e.g., pasta, cereals, meat, juice, snacks, dairy) at each food bank. Furthermore, certain food banks receive excessive supply of foods that they do not desire such as pickles. Consequently, there is an imbalance between the timely demand at each food bank and the allocated supply provided by Feeding America, which often leads to spoilage. So, how should Feeding America allocate its food supply to the food banks so that the supply can meet demand in a fair and timely manner?

To overcome this challenge, Feeding America set up a Task Force to find ways to reduce misallocations of food in 2005. The Task Force developed a “market” clearance mechanism (known as “The Choice System”) by offering “Shares” to each food bank on a periodical daily basis so that they can bid for the type and the quantity of food.[1] The Choice System is akin to the eBay platform: Feeding America “auctions” off its inventory of different types of foods on a daily basis. Upon reviewing what is available on the list and what is needed, each food bank uses its allocated shares to bid for different quantities of different items that they desire. By using a sealed-bid system, the highest bidder wins and receives the item and the number of shares of the winning bid will be subtracted from the winning bidder’s balance. Any items that “did not sell” on a given day will be carried over to the following day for more bidding. The following figure is a mock-up of the Choice System that may be seen by a regional food bank in Los Angeles. The system provides information about the current balance (9500 points) and the historical (winning bid) of different items (e.g., 5500 points for cereal) that is intended to help each food bank to determine its own bid to reveal its current need. The system allows each food bank to “borrow” shares so that it can win some items that it needs desperately. At the same time, the system allows each food bank to “earn” shares by bidding (negative points) for items that were not in high demand (e.g., pickles).

The Choice System was a great success. By 2010, over 200 million pounds of items were auctioned off. Also, the Choice System enables each food bank to reveal its true preference on a daily basis, which is reflected in the variability of the winning bids associated with different items in 2008 (Prendergast, 2015).

This information was helpful to Feeding America because it enabled them to inform the donors (manufacturers and distributors) about the relative preference of different types of items. By doing so, donors can donate the right type of items that can “sell” easily on the Choice System. In fact, the percentage of sales that involves negative bids (i.e., items that no food bank wants) has decreased from 10% in 2008 to 2% in 2011. Ultimately, the Choice System creates mutual benefits by making supply meet demand along the supply chain!

Reference

Prendergast, C., “The Allocation of Food to Food Banks,” working paper, Booth School of Business, University of Chicago, 2015.

[1] The number of shares given to each food bank is based on its size (i.e., aggregate demand, number of beneficiaries it serves, aggregate supply of foods donated by local communities).